Social Security beneficiaries are each year given a cost-of-living adjustment (COLA) to keep their benefits in line with inflation. Technically, however, the 2026 COLA won’t be announced until October 2025, when it will be determined from third-quarter inflation data (July-September). Still, The Senior Citizens League (TSCL), a nonpartisan seniors’ advocacy group, recently upped its forecast for the 2026 COLA to 2.3%, from 2.1% in January.
While a higher COLA might sound like good news, it has terrifying consequences. First, a 2.3% COLA would potentially accelerate the running down of the Social Security Trust Fund, leaving Congress with even less time to fix the program’s financial dilemma. Second, the process of projecting COLAs could again underestimate actual inflation so that Social Security benefits would continue to lose purchasing power.
A higher 2026 COLA could speed up Social Security trust fund depletion
The Old Age, Survivors, and Disability Insurance (OASDI) Trust Fund is a Social Security savings fund that builds up the revenues of payroll taxes until they are distributed as monthly payments. A great deal of its income comes in the form of interest on investments from the trust funds. That stream of revenue is projected to dry up over the next decade. According to the latest estimates, the OASDI Trust Fund will be depleted in 2035 when future payroll taxes will only cover 83% of benefits due.
It should be noted that trust fund depletion does not mean Social Security payments stop. Instead, unless Congress intervenes, benefits will automatically be reduced by 17%. The Social Security Trustees based their projection of insolvency on the assumption that the 2026 COLA would be 2.2%. But TSCL’s estimate of a 2.3% growth means that Social Security will be paying out more in benefits than anticipated, possibly speeding up the date of insolvency.
If Social Security’s 2026 COLA is higher than projected by the Trustees, the trust fund might be exhausted earlier than expected. This would put pressure on Congress to move sooner than planned, and if lawmakers don’t respond in advance of schedule, benefit reductions might be more on the horizon sooner than expected. In any event, the financial future of retirees and Social Security beneficiaries is uncertain.
2026 COLA may underestimate real inflation for retirees
Social Security’s COLA relies on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which measures inflation based on what working-age adults spend. But retirees consume differently, especially in things like shelter and health care, which tend to rise at higher rates. Most experts contend that employment of the Consumer Price Index for the Elderly (CPI-E) would better represent cost-of-living increases for retirees.
In recent years, CPI-E has overtaken CPI-W, which would have resulted in Social Security recipients receiving larger COLAs if benefits had been increased based on CPI-E. That was the case right into early 2025, as CPI-W increased 3% in January and CPI-E by 3.1%. If that trend continues, the 2026 COLA will once again not keep up with the rising costs retirees have to pay, reducing Social Security’s purchasing power even further.
Retirees face an uncertain future with social security
The chance of a higher 2026 COLA offers little solace to retired individuals who have already seen their benefits barely keep pace with true inflation. The increase could put the Social Security Trust Fund nearer to running out of money without moving beyond actual cost-of-living expenses for beneficiaries. If Congress does nothing to bolster Social Security’s reserves and transition to a better inflation gauge, retirees will remain disadvantaged.
The long-term sustainability of Social Security is doubtful, and the 2026 COLA reminds us that there are problems that need to be solved. While some policy reforms—like using CPI-E in determining COLA—will help keep retirees’ purchasing power, lawmakers will need to find fixes to keep the program solvent for future generations of retirees too. If left untouched, Social Security’s fiscal woes could cause the program to make benefit cuts earlier than expected, leaving tens of millions of retirees financially strapped.
